What to Know Before You Switch Banks
Banks aggressively offer promotions every month in the hope of luring new customers and boost their profits with fresh deposits.
Some of the offers are certainly appealing. Perks include no fees for a certain period of time or even free cash. In theory at least, it’s tempting to switch banks simply to take advantage of the best deals.
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Now for a reality check: Americans are mostly satisfied with their banks. While more than a third say they would close their primary checking account or consider leaving a bank because of its fees, only 8 percent of people actually closed or switched accounts in the past two years. That’s according to a recent TD Bank survey.
The main reason for switching banks wasn’t even related to high fees but to a life event, such as a move or a divorce.
“There’s a big difference between why people say they would switch and why they actually switch,” said Nick Clements, a consumer banking expert and co-founder of MagnifyMoney.com.
Opening an account at a new bank can often bring more hassles than benefits, especially if your paycheck is directly deposited at your current bank. You’ll need to change that as well as change any automatic monthly bill payments you’ve already set up.
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“It’s typically hard to change your checking account because it’s so ‘sticky,’” said Clements.
Although some of the perks of a new checking account may seem attractive on paper, you’ll most likely still have to deal with high ATM fees, minimum deposit requirements and overdraft fees down the line.
It’s a whole different ball game when it comes to savings accounts, though. “Switching a savings account is easier and that’s where you’re starting to see a lot of action,” said Clements.
That’s due largely to online savings accounts. Internet savings accounts including those offered by Capital One (Capital One 360, which used to be ING Direct), Synchrony Bank or Ally Bank are easy to set up and have experienced large growth recently — deposits are growing as much as 20 percent a year, said Clements. Affluent customers with more cash to work with and millennials, who have less loyalty to a specific bank, are the groups who switch most often.
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Saving rates offered by online banks are typically much higher than those by traditional banks, and you still benefit from FDIC insurance.
“It’s easy to switch — and the difference in interest rates is just ridiculous,” said Clements. Case in point: The rate on a basic Citibank savings account is currently 0.01 percent, compared to 1 percent if you open a savings account with Synchrony Bank. So if you put $50,000 in a savings account, you’ll be getting $495 more online annually than at a brick-and-mortar bank.
Of course, you should be aware of the risk of ID theft or phishing whenever you have sensitive information online. An online-only savings accounts may not make sense for those who are less tech savvy.
Bottom line: It makes little sense to switch banks for your checking account, but your savings may earn more if you hop to an online savings account.
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